The Law on Reserved Alternative Investment Funds dated 23 July 2016 ("RAIF Law")1, introducing a new type of Luxembourg investment vehicle named "Reserved Alternative Investment Fund" (in short "RAIF"), entered into force on 1 August 2016.
The RAIF is regulated under the AIFMD2 and benefits from the corresponding EU passport but is not supervised by the Commission de Surveillance du Secteur Financier ("CSSF"), making it an attractive vehicle from a time-to-market perspective.
The AIFMD, a managers' directive and a change of paradigm
The AIFMD requires that authorised alternative investment fund managers ("AIFMs") ensure that the alternative investment funds ("AIFs") they manage comply with the AIFMD product rules3, irrespective of whether or not the relevant AIF is subject to a product regulation.
When an AIF is a regulated and supervised product, compliance with product rules is consequently ensured at two levels: at the level of the AIF itself and at the level of its AIFM. Similarly, the AIF is subject to a double supervision system, by its supervisory authority and that of its AIFM, which could be based in a different country.
This double system of approval and supervision is not required by the AIFMD. It entails increased protection, which is not necessarily deemed justified by a series of professional and sophisticated investors performing their own review of the AIF's structure and documentation.
The introduction of the RAIF regime seeks to widen the range of investment vehicles available in Luxembourg, offering a new option to the initiators of Luxembourg AIF projects.
The creation, launch, documentation, activities and termination of the RAIF are not subject to the approval of or any supervision by the CSSF, but still enjoy all the structuring flexibility from which (CSSF approved and supervised) Luxembourg funds benefit.
In order to be eligible for this new regime, the RAIF has to be an AIF managed by an authorised AIFM, both within the meaning of the AIFMD. The AIFM may be established in Luxembourg, in another Member State of the European Union ("EU Member State") or even, once the AIFMD passport is available to third countries, in a third country in accordance with the provisions of the AIFMD.
Due to the necessity for the RAIF to be managed by an authorised AIFM, it is indirectly supervised through the prudential supervision exercised by the competent authority of its AIFM. For the same reason, the RAIF benefits from the European passport granted by the AIFMD for marketing to professional investors in the EU.
The other features of this new Luxembourg investment vehicle are substantially identical to those of the specialised investment fund ("SIF")4 and the RAIF Law has therefore been drafted drawing heavily from the text of the SIF Law5.
The main differences between the RAIF Law and the SIF Law result from the fact that all references to the role and mission of the CSSF found in the SIF Law have been excluded from the RAIF Law. However, certain mechanisms have been introduced to ensure compliance with the law, particularly by the AIF's management body.
The RAIF has become a vehicle of choice for managers and investors looking to combine contractual freedom and short time-to-market together with both the protection of the AIFMD framework and the RAIF Law, and the marketability of an investment vehicle benefiting from an EU passport.
The purpose of this Memorandum is to describe the main features of the RAIF regime.
CHAPTER I: GENERAL PROVISIONS
The RAIF regime is applicable to Luxembourg AIFs
- managed by an authorised AIFM, (ii) that invest in accordance with the principle of risk-spreading6,
- whose securities or partnership interests are reserved for well-informed investors, and (iv) whose constitutive documents7 provide that they are subject to the provisions of the RAIF Law.
1.1 AIF managed by an authorised AIFM
RAIFs represent a specific category of AIFs that must be managed by an authorised AIFM. Therefore, unlike a SIF, a RAIF cannot be a non-AIF or be managed by an exempt AIFM8.
1.2 Not supervised by the CSSF
An essential difference between the RAIF and the SIF is that the latter is subject to approval and supervision by the CSSF whereas the RAIF is not subject to such approval and supervision.
There is thus no need for CSSF approval for the creation, launch or even termination of a RAIF and, similarly, no approval is required in the event of changes to its constitutional documents, offering document or other documents governing its functioning. The operations and activities of the RAIF are at no point under the ongoing supervision by the CSSF or any supervisory authority (other than via the AIFM). The timeframe within which a RAIF can be set up and launched is therefore more attractive from a time-to-market perspective.
1.3 Reserved to well-informed investors
In the same manner as for SIFs, investment into RAIFs is limited to well-informed investors that are able to adequately assess the risks associated with an investment in such a vehicle.
The RAIF Law defines well-informed investors as (a) institutional investors, (b) professional investors, and (c) other investors who:
- confirm in writing that they adhere to the status of well-informed investors; and
- invest a minimum of EUR 125,000; or
- benefit from an assessment made by a credit institution, an investment firm or a UCITS management company or an authorised AIFM certifying their expertise, experience and knowledge to adequately appraise the contemplated investment in the RAIF.
Therefore, sophisticated retail or private investors will be authorised to invest in RAIFs through the use of this latter category (c).
The aforementioned conditions do not, however, apply to those persons involved in the management of the relevant RAIF.
1 The RAIF Law is available on our website together with an unofficial English translation of the same.
2 "AIFMD" refers to Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers.
3 The AIFMD includes provisions which apply to AIFs managed by authorised AIFMs. These are notably the requirements for the AIF to appoint a depositary and an approved statutory auditor, to provide certain information to investors, to publish an annual report and to comply with certain investment and leverage rules.
4 Notably as regards the various legal forms (corporate and contractual) which are available, the absence of limitation as regards eligible assets or investment policies, the possibility to have multiple compartments and multiple classes as well as the flexible subscription, redemption and distribution features and, as a matter of principle, the tax regime of a taxe d'abonnement at a 0.01% rate (or nil rate in certain circumstances).
5 "SIF Law" refers to the Law of 13 February 2007 on SIFs, as amended. For further information, see our Memorandum Specialised Investment Funds, Luxembourg regime for investment funds dedicated to sophisticated investors, on our website www.elvingerhoss.lu.
6 Except for certain RAIFs investing solely in risk capital as discussed in Chapter III Section 1.2 of this Memorandum.
7 i.e., mainly the articles of incorporation (statuts), the management regulations (règlement de gestion) or the partnership agreement (contrat social).
8 An "exempt AIFM" is an AIFM that benefits from one of the exemptions of Article 3 of the AIFMD, that does not have to comply with all the provisions of the AIFMD, but which is therefore deprived of the benefit of the European passport for marketing provided for by the AIFMD.
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